It’s about #@#@** time that somebody stands from the rooftops and shouts that last week SEC Chairman Chris Cox saved the stock markets. When he issued his emergency rule, applicable to 19 leading financial firms, against “naked short selling” (promising to sell stocks at a low price that one not only doesn’t yet own, but doesn’t even have an agreement yet to borrow), and promised to ask the Commission to extend the rule throughout the market…. what happened? Well, despite all sorts of gnashing of teeth and wrongheaded criticism (including this absurd column by the WaPost’s Sebastian Mallaby), the fact of the matter is that the markets, badly tanking up until then, staged an almost immediate rally — big, bold, and deep — which continues as of this writing. The Dow rose more than 200 points the very next day, and overall it is up something like 500 points since Cox’s action. A number of news stories have directly tied the rise in the markets to Cox’s action, but always buried deep within the article, and always in passing.
But it deserves headline-making attention. What this economy has needed for months has been part substantive corrections and partly a change in psychology. The latter, in circumstances of bank runs and panics, is often at least as important as the former. Cox’s emergency order, substantive as it was (and it WAS substantive, and much needed, as will be the broader rule when/if it is issued), also completely changed the psychology at work, for the better. Combined with President Bush’s announcement that he is rescinding the executive order against offshore drilling, which had the immediate effect of driving down oil prices (again, psychology at work — or, rather, a change in outlook which is based on fundamentals but which acts through psychology), the Cox move may well be seen in retrospect as the turning point in this economic rough patch we’ve been having. Much more needs to be done, of course, most of it by policymakers in Congress or the administration who sometimes seem to want to do exactly the wrong thing — but for now, Cox seems to have put a stop to the panic, reintroduced some much-needed cautious optimism, and also of course done the right thing substantively to ensure that buying and selling actually involves securities that exist somewhere other than in somebody’s imagination.
Cox explains it all very well in today’s Wall Street Journal.
But there’s more to be said, from a political standpoint. A few months back, when Cox was enduring moronic criticism about supposed complacency during the Bear Stearns mess, the Chamber of Commerce took out a large ad in the Washington Examiner dedicated explicitly to singing Cox’s praises. Few people in Washington enjoy such respect from such an important group. Cox also has the respect of the tech community for his sponsorship of the Internet Tax Freedom act and for all sorts of other tech-savvy actions during his years in public life. And he did yeoman’s work as first-ever chairman of the then-brand-new Homeland Security Committee in Congress. It all makes one think that if he were even half as aggressive at running to the TV cameras as, say, Chuck Schumer is (any more than half as aggressive would be obnoxious!), he would be a familiar face in most news-watching American living rooms, with a well-deserved reputation as a steady hand in tough times.
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